World Bank Policy Research Reports help the development community take stock of current knowledge on a subject of importance to development. They contribute to the debate in both the academic and policy communities on appropriate public policy objectives and instruments for developing economies.

Because they summarize research, the Policy Research Reports provoke further debate, both within the Bank and outside, concerning the methods used and the conclusions drawn. It is important to note that these reports are not statements of official policy, but are intended to inform policy.

2. Why is the World Bank interested in tropical forests?

The report deals with two central concerns of the World Bank: poverty and environment. The Bank’s core mission is poverty reduction. This focuses attention on the 800 million people—many of whom are extremely poor— who live in or around tropical forests or woodlands. Access to trees and to forest land is critical to their survival. The Bank is also deeply involved in protecting the global environment. Tropical deforestation is important to this concern because it contributes about 20 percent of annual global CO2 emissions, and seriously threatens biodiversity.

3. Is this report leading the World Bank to rethink its forest strategies?

The report’s cross-sectoral approach can inform implementation of the World Bank’s Forest Strategy and Policy. That strategy has three broad components: harnessing the potential of forests to reduce poverty, integrating forests into sustainable economic development, and protecting local and global environmental values. The report in part reflects innovative Bank research and operations on accomplishing these goals, and also brings to bear new findings and perspectives on them.

4. What’s new about this report?

This report takes a fresh look at the problems of forest poverty, deforestation and agricultural pressure on forests. It finds that generalizations such as ‘poverty causes deforestation’ and ‘deforestation causes poverty’ are only partially true and do not provide a reliable foundation for policy. Instead, it shows how poverty and deforestation are related but separate issues.

The report identifies the distinct priorities and challenges for three different types of tropical forests.

The report systematically examines the hurdles that have kept carbon finance from being used to reduce deforestation, and provides workable solutions.

5. Who cuts down forests? Does poverty cause deforestation or deforestation cause poverty?

Assumptions such as ‘poverty causes deforestation’ and ‘deforestation causes poverty’ are at best only partially true. Poor people sometimes cut down forests, but so do rich people. For instance, about 80% of deforestation in the Brazilian Amazon occurs in clear-cuts of 20 hectares or larger, reflecting commercial-scale activities rather than that of poor households. When poor people do cut forests, their gains may be small and ephemeral. In Madagascar, for instance, deforestation may return just $39 per hectare per year, and only for a few years. But sometimes, as in Indonesia or Cameroon, households can create cocoa farms worth $1500 or more

Similarly, deforestation can deprive rural people of assets. Indonesia, for instance, experiences disputes between plantation interests and local people over control of forest land.

6. What are the priorities for tropical forests today?

The report identifies three types of forests and distinct priorities for each:• For often overlooked mosaiclands, where people and trees are most closely integrated and land tenure more secure the report’s suggestions include payments for environmental services programs such as carbon, biodiversity, and water regulation.• In frontier and disputed areas, sorting out and guaranteeing forest rights is critical to mitigate deforestation, reduce conflicts, and improve rural livelihoods.• In areas beyond the agricultural frontier, such as the Amazon and Congo basins, quick action to head off the social and environmental impacts of future agricultural expansion is the main challenge.

7. Why is fair allocation of forest rights so critical?

The report finds that remoteness and lack of forest rights are among the leading causes of poverty among forest dwellers. Fair allocation of rights is an extremely important step toward boosting rural incomes and strengthening forest governance. In Asia, tens of millions of people live in ‘forests without trees’—state forest lands where trees have been removed but where zoning regulations make land tenure problematic. And secure assignment of rights is an essential prerequisite for implementing some kinds of environmental services markets.

Global carbon markets can provide a strong financial incentive for countries to avoid deforestation. Forest is often converted to low value uses in developing countries. For example, in Latin America and elsewhere, tropical forest is often cleared to create pastures worth just $300 a hectare, while releasing large amounts of CO2. But industries in developed countries pay thousands of dollars to reduce their CO2 emissions by an equivalent amount. In other words, the forest has greater value as a storehouse of carbon than as a low-grade pasture. If developing countries could tap this value through global carbon markets they could use strengthen forest governance, support sustainable land use, and boost rural incomes.

9. Why does global forest carbon finance make sense for climate?

The United Nations Framework Convention on Climate Change, signed by 189 countries, aims to stabilize the amount of greenhouse gases (GHGs) in the atmosphere. GHGs are increasing largely because people burn more fuel, which is why serious reduction requires a shift to cleaner energy. Nonetheless, GHG emissions from deforestation are an important component – significantly greater than total emissions from the transport sector, for instance. Containing forest carbon by keeping forests standing could be an effective and inexpensive part of the overall approach to mitigating climate change. It is an option that could well reduce the cost of a global mitigation strategy—and anything that reduces the cost increases the chance that the strategy is widely adopted.

10. What are the hurdles to using carbon finance to reduce deforestation? If finance for avoided deforestation is desirable, why hasn’t it been allowed so far?

Under the Kyoto Protocol, a group developed countries have accepted obligations for reducing GHG emissions. They may meet those obligations in part by assisting developing countries to realized GHG emissions reductions, through shifts to cleaner energy sources. While the Protocol allows credit for some types of forestation, it does not recognize avoidance of tropical deforestation as a source of emissions reductions. However, the United Nations Framework Convention on Climate Change is now discussing the possibility of incorporating avoided deforestation into the global climate mitigation system.

The report proposes a system where the international community would offer incentives to tropical forest nations to reduce their deforestation-related emissions. It systematically examines the concerns about the use of carbon finance to reduce deforestation. Some of the main points are summarized below.

Cheapness is a virtue, not a disadvantage. The key is to use this inexpensive, environmentally friendly option to support more ambitious targets for reducing greenhouse gas emissions.For a carbon market, this means this means more stringent restrictions on greenhouse gas emissions, and hence a higher demand for emissions reductions. By increasing both demand and supply, the price would stay at an acceptable level for all parties, with a stronger impact on climate change.

“Stopping deforestation should be permanent to be useful, but it is impossible to guarantee that a forest will stand forever.”

Buyers want agreements that securely guarantee carbon sequestration into the distant future. But sellers may not want to close their options forever. The answer is to recognize that avoiding deforestation is useful even without a guarantee of permanence. Even temporary commitments to carbon sequestration can buy time to act on climate change. Since we do not know the thresholds beyond which such catastrophic effects take place, it is prudent to keep CO2 levels low and rising slowly.

“If you protect one forest, people will just go and cut down another”

Avoiding deforestation is about more than just protecting trees. To be successful, an avoided deforestation program also has to reduce the underlying pressures for deforestation. To do this, the program can encourage sustainable agricultural intensification in nonforest areas—intensi¬fication that soaks up the workers, and capital diverted by forest protection, and replace the wood or food that deforesters sought to produce.

11. How much does deforestation contribute to climate change, relative to other sources?

Globally, deforestation contributes almost twice as much greenhouse gases as does road transport. Emissions from deforestation exceed by 23% those from the heat and electricity used by all residential and commercial buildings. Deforestation emissions are about 14% below the total emissions from global industry.